Also known as: true consignment · consignment · true consignment transaction
Written by attorneys · grounded in primary & secondary sources — see below
A transaction in which a person delivers goods to a merchant for the purpose of sale. The arrangement qualifies when the merchant deals in goods of that kind, the goods are held for resale, payment occurs only upon sale, and unsold goods may be returned.
Prairie Seeds delivered pallets of branded seed to Green Valley Farm Supply under an agreement requiring payment only for bags sold and allowing return of unsold bags. Green Valley displayed the seed as part of its inventory. When Green Valley's bank seized all inventory under a perfected lien, Prairie's retained interest in the seed operated as a security interest requiring perfection to prevail.
Leverett and Freeman delivered jewelry to the debtor retail jeweler on consignment terms. The debtor's bank claimed a perfected security interest in all inventory. The consignors asserted superior rights based on their delivery arrangement, requiring the court to determine whether the consignments created interests subject to the same priority rules as the bank's lien.
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A consignment falls under Article 9 when a person delivers goods to a merchant for sale, the merchant deals in goods of that kind, payment occurs only for units sold, and unsold goods may be returned. The consignor's interest is then treated as a security interest in inventory.
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The consignor's interest is characterized as a security interest securing the merchant's obligation to pay for sold units. This characterization subjects the interest to perfection and priority rules against competing lenders.
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No. The UCC looks past labels and includes the interest of a consignor in goods delivered under a qualifying consignment within the definition of a security interest.
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